TCM Guide 2007 : Sepa: Reaching Beyond European Borders

SEPA stems from the same vision of a single European marketplace that gave birth to the euro. The introduction of the euro left Europe’s payment instruments and clearing infrastructures largely untouched; cross-border payments remained costly to process and acted as an ongoing barrier to a true single market in which businesses could trade as easily across Europe as within their own national boundaries. SEPA is the banking industry’s response to the determination of Europe’s politicians to facilitate the free flow of capital, labor, goods and services within Europe. Under SEPA, the introduction of new pan-European payment instruments will standardize the core payment products and services used across the region, remove the long-standing requirements to maintain local accounts in each country and eliminate the need to understand the myriad of differences that exist between national payment instruments today. It holds out the prospect of a single, streamlined payment and collection process to support relationships with customers and suppliers across the continent. SEPA makes Europe an easier place to do business in, as well as making it an easier place to do business with.

SEIZING THE OPPORTUNITY
To understand the impact of SEPA in more detail, let’s take two types of business; the large multinational already doing business across Europe and the fast-growing company that’s increasingly looking at trading abroad.

Many multinationals with extensive operations in Europe are already centralizing and standardizing their payments, collections and liquidity management processes. But firms that have sought efficiencies through adoption of a single global ERP system—or centralized structures such as payment factories, in-house banks or shared service centers—have been compromised by the persistence of local payment practices. Payment factories still have to consolidate payment files from multiple local offices and shared service centers still need to maintain expertise in local payment practices. The question all multinationals should ask is: how much more efficient could our payment processes be under SEPA? As the single market takes shape and new sources of competition emerge, low operating costs will be increasingly critical. Cross-border trade is central to the SEPA vision; a uniform payment and collection process across Europe can remove the constraints that previously accompanied management of supply chain relationships, thereby enabling firms to source from the best suppliers regardless of where in Europe they are located.

For firms that conduct increasing volumes of business with Europe, SEPA offers a different kind of opportunity. When establishing operations in say, France, Germany and Spain, it has typically been necessary to establish banking relationships, open bank accounts and define best practice for payment and collections processes in all three countries—adding considerable cost and effort to the decision to expand into new markets. If businesses can operate out of a single account with one bank in any Member State, the costs of serving the European market are reduced considerably. While technology drove efficiencies in the physical supply chain to make it easier to reach remote markets, the development of common payment standards is now having the same impact on the financial supply chain. Automation and standardization lie at the heart of SEPA, enabling integration and interoperability with companies’ existing systems, for example by taking advantage of XML-based ISO 20022 message standards.